created by Rajesh Dhruva

UNION BUDGET 2021-22

FINANCE  ACT, 2021

India has been one of the most attractive destination for global investors in recent years. This trend continued even during  pandemic as India received $28.1 billion by way of Foreign Direct Investments (FDI) in the second quater of 2020-21, the highest among the major global economies.

Many benefits/reliefs are given to NRIs.

HIGHLIGHTS OF FINANCE ACT 2021 ARE AS UNDER:

 01. Under current law, the worldwide income of an Indian Resident is taxable in India. In case of NRI, only the income earned in India is taxable. Under the changes made in the Act,  an Indian citizen who is not liable to be taxed in any other country or territory shall be deemed to be Resident in India. To give more clarity to the same definition of "Liable to Tax " it has been proposed as under :

The term ‘liable to tax’ in relation to a person means that there is a liability of tax on such person under the law for the time being in force of any country and shall include a case where subsequent to imposition of such tax liability, an exemption has been provided.

Indian passport holders who are residents in zero tax jurisdictions, such as UAE, Bahamas ,Oman, Bahrain, Qatar, Kuwait, Saudi Arabia etc will potentially be subject to tax in India on their global Income.

02. The budget proposal has allowed NRIs to create  one-person company(OPC) to propel entrepreneurship, by reducing  residency limit from 182 days to 120 days. With this move the Government  has opened extra channels of investments and positive  to reel in overseas Indian talent.

03.The Finance Act has also allowed foreign participation through infrastructure investment trusts by allowing debt financing by FPIs in Real Estate Investment Trusts (REITS) and Infrastructure Investment Trusts (InvITs) will lead to more investments. Also relaxing norms on TDS reduces the compliance burden in REIT and allows investors to have more cash flow and plan better for taxation.

04. Relief for NRIs facing Double Taxation issue on retirement accounts;
Currently the withdrawal from foreign retirement accounts may be taxed on receipt basis in those countries while on accrual basis in India. This is usually due to mismatch in taxation periods.  It has enacted rules for removing hardship of double taxation .

05.The union Budget has rationalised the tax on dividends for Foreign Portfolio Investors (FPIs), bringing it at par with treaty rates, which could be lower than 20% tax rate applied presently.

Rationalising  TDS on dividends for FPIs to treaty rates ranging from 5 to 15% depending on the country of  Resident of FPI from current year of 20% will provide a big cash flow relief for FPIs.

06.The Finance Act has also prescribed that advance tax liability on dividend income will arise only after the declaration or payments of dividend so that exact quantum of dividend income can be figured out. 

07.The Finance Act 2021 has also increased FDI limit in insurance companies to 74% from present 49% providing a further boost to FDI inflow.